Tesco today called on the Bank of England's monetary policy committee to cut interest rates soon, saying the risks to the economy posed by inflation were far lower than the threat connected with a downturn in consumer confidence.

Andrew Higginson, finance director at the supermarket group, said inflation in Tesco stores was running at 0.8%. The price of non-food goods — from fashion to electrical goods — was still declining and while food prices were higher, the increase over the past three months was less than it had been over the same period last year.

"Inflation has been massively overblown," said Higginson. "It's only in a few products. There has been genuine inflation in some seasonal and commodity products, but the very competitive nature of UK supermarkets means price is the last thing to alter".

He said the Bank should cut rates at the earliest opportunity: "We have a fundamentally different view of the risks of inflation than the Bank of England appears to have. The next move on interest rates has to be down, and soon, because the risk of inflation is limited but the risk of the consumer turning off is higher".

Tesco accounts for more than 31% of the grocery market. Its inflation figures exclude the impact of petrol price rises.

Higginson's comments came as the grocer unveiled an improvement in third- quarter trading, with total sales ahead 11.8% in the three months to November 24, compared with a 9.8% improvement in the first half, with all parts of the business firing on all cylinders.

International sales were ahead 21.4% at constant exchange rates. The grocer's 47 hypermarkets in China are driving the performance of the business overseas, but Higginson also pinpointed Turkey as a particular success. The group's Hungarian stores are also improving: "Hungary has returned to growth because the economy has returned to growth", said the finance director.

Last month the grocer opened the first stores in a new chain in the US. So far 13 of the new Fresh & Easy outlets have opened in Los Angeles and Las vegas, but Tesco is planning to expand the chain of small discount-style stores focusing on fresh food and ready meals to 1,000 stretching down the West Coast from Seattle to San Diego. Market research group TNS forecast the chain could force its way into the top 10 grocers in the US within eight years, with sales of $10bn.

In the UK total sales were up 7.6% in the last three months with like-for-like sales ahead 4.1%. That result is better than the 3.7% achieved by rival Morrisons in the 14 weeks to November 4 and ahead of the most recent Sainsbury figures.

The 4.1% growth is slower than over the same period a year ago, but an improvement on the first half, when sales were ahead by 3.5% as a result of the poor summer weather.

Growth in the non-food ranges has slowed. "Clothing has been off the pace compared to other categories", said Higginson. "The clothing market has been difficult for everyone". But, he added: "The good news is electricals, especially laptop computers and TVs".

Online sales have also been buoyant, with the Tesco Direct business, which has been set up to rival Argos, and the online grocery business both pulling in record takings last week.

Higginson was upbeat on the outlook for Christmas: "We think we will have a good Christmas. We have three weeks of critical trading ahead, but with the current consumer outlook it is difficult to make long term predictions".

James Anstead, retail analyst at Citi, said the grocer's figures were not "vintage", but they were "robust" given the tough environment and tougher competition from rival grocers.

Tesco's update and Higginson's call for a cut in the cost of borrowing came as new figures from Footfall, a retail research group which measures the number of consumers out shopping on high streets and in retail parks, showed shopper numbers down 3.5% on a year ago.

The researchers said: "The expected flood to the high street this week has been more of a washout for retailers, as the year-on-year fall in shopper numbers continues to plummet".

The British Retail Consortium also reported a weak rise in sales last month despite heavy discounts. UK retail sales edged up 1.2% on a like-for-like basis compared with November a year ago. The industry association also blames declining consumer confidence on interest rates, along with the slowing housing market and the turmoil in financial markets.

Several consumer-facing businesses have been forced into profits warnings in recent days, including the pub chain Regent Inns and restaurant group Clapham House, which operates Gourmet Burger Kitchen and Tootsies.

B&Q group Kingfisher and DSG, which owns Dixons and Currys have also warned of tough times ahead while jewellery group Signet, which owns H Samuel and Ernest Jones, last week became the first retailer to issue a pre-Christmas profits warning.